Risk and uncertainty are ubiquitous and varied in agriculture. They stem from uncertain weather, pests and diseases, volatile market conditions, and commodity prices.

Managing agricultural risk is particularly important for smallholders because they lack resources to mitigate, transfer, and cope with risk. Risk also inhibits external parties from investing in agriculture.

Timely information is essential to managing risk. Information Communication Technologies (ICTs) have proven highly cost-effective instruments for collecting, storing, processing, and disseminating information about risk.

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Central Role of Information and ICTs in Risk Management

Risk management strategies are numerous, which could be ex-ante strategies (adopted before a risky event occurs) to reduce risk (by eradicating pests, for example) or limit exposure to risk (a farmer can grow pest-resistant varieties or diversify into crops unaffected by those pests).

Risk can also be mitigated ex ante by buying insurance or through other responses to expected losses such as self-insurance (precautionary savings) or reliance on social networks (for access to community savings, for example).

It could also be ex-post strategies (adopted to cope with losses from risks that have already occurred), including selling assets, seeking off-farm employment, etc.

All of the above-mentioned strategies risk mitigation, transfer, and coping have limitations, and farmers often deploy a combination of strategies to manage their risks. The mix of strategies often depends on factors like the availability and understanding of different risk management instruments, institutional and physical infrastructure, a farmer’s capabilities and resource endowment, and a farmer’s social network.

Information about what needs to be done, when, how, and why is fundamental for smallholders and other stakeholders in the agricultural sector to implement actions to mitigate risk, transfer risk before it occurs, and determine how to cope once those events have occurred.

Most farmers have long relied on a patchy network of local middlemen, a handful of progressive farmers, and local shop owners to receive critical information, whose reliability, accuracy, and timeliness can have a critical impact on their decision-making and therefore livelihood.

These are fundamental decisions, such as what price to sell the crop, where to sell (given the numerous fragmented markets), when to harvest, and when to spray pesticides to save the crop.

ICTs such as the Internet, networked computers, mobile phones, and smartphones are the latest in a long line of technologies (the newspaper, telegraph, telephone, radio, and television) that support risk management practices by collecting, processing, distributing, and exchanging information.

A survey of current applications of ICTs to manage agricultural risk suggests that they are valuable for two primary reasons. First, ICTs channel information, advice, and finance to farmers who are difficult to reach using conventional channels.

ICTs reduce the costs for organizations to provide risk management services because they can greatly reduce the costs of collecting, storing, processing, and disseminating information. These cost reductions have produced two effects that encourage private investment in ICTs to manage agricultural risk.

First, previously unprofitable activities have become profitable. Second, reductions in operating costs can reduce prices for the end user. Products and services that were once too expensive for the poor have come within reach, opening a new market segment for risk management products.

The use of ICTs to manage agricultural risk is at such an early stage that it is difficult to discern trends, but interesting developments are underway.

Increasingly, the private and public sectors are collaborating to invest in ICTs that can deliver timely information to farmers. With continuing improvements in technology, software, and infrastructure, the quality and richness of that information are improving over time to address specific needs for individual farmers.

Information services will allow farmers ever more interactive, two-way communication with agricultural experts and others in the agricultural innovation system. With the incorporation of ICTs, supply chains are becoming far more transparent and capable of including smallholders.

The technology seems to help farmers avoid default risks and produce to consistent quality specifications, which is an important step towards participating in more lucrative commodity markets.

Problems of ICTs in Risk Management

If it is difficult to ascertain trends from nascent activities such as those described in the topic notes, it is even more challenging to assess outcomes and draw lessons.

Many of these activities should be evaluated rigorously to determine their impacts and critique their approaches to using ICT in managing agricultural risk. Despite these caveats, several preliminary insights, cross-cutting challenges, and key enablers for risk mitigation, risk transfer, and risk coping should be noted.

1. Service Cost: The first key challenge and enabler of ICTs in risk management is the cost of risk management services, particularly information services customized to farmers’ needs.

However, before adequate customization occurs, most risk management services need public or private funding to support farmers’ initial access. Thus, partnerships are central to assembling the combination of knowledge, skills, and resources required to manage risk through the use of ICTs.

Successful efforts display cooperation between software developers, hardware manufacturers, agricultural experts, financial intermediaries, state governments and institutions, donors, nongovernmental organizations (NGOs), mobile operators, and others in the private sector.

These partners might have different incentives for participation that may not always be compatible, and different stakeholders may have different time horizons.

To hold such partnerships together, an appropriate balance must be struck between stakeholders’ competing interests and short- and long-term gains.

Because partnerships, particularly with the participation of the private sector, are so vital in risk management, an enabling policy environment and institutional framework supporting business and entrepreneurship is a critical incentive for private investment to cope with or transfer risk.

Fundamental elements are adequate physical and telecommunications infrastructure for the cost-effective deployment of ICTs. Where costs are sufficiently low because mobile infrastructure is already available, more profitable opportunities may exist.

2. Farmers’ Capacity: Farmers’ capacity is also a determining factor in the successful application of ICTs in risk management. Rural areas, where risk management services are so desperately needed, also lack education services, financial services, and even agricultural services.

Many aspects of human capacity such as financial literacy, knowledge of best agricultural practices, and familiarity with technology are prerequisites for using risk management tools successfully. The majority of farmers in both rural and urban areas in developing countries have not fulfilled these prerequisites.

3. Gender Issues: Women and other vulnerable groups do not have equal access to risk management tools. Traditional cultural norms in many societies restrict women’s mobility, education, assertiveness, and awareness, all of which affect their ability to acquire information or advisory services to help manage agricultural risks.

The underlying structural gender constraints make them passive recipients rather than active seekers of information. Even when women proactively seek information, their access to information and ability to use it are hampered by gender norms and stereotypes.

Theoretically, the impersonal nature of ICTs overcomes some of the traditional barriers and gender asymmetries that women face in accessing information. A mobile phone, for example, does not differentiate between a female farmer and a male farmer, but a male extension worker might.

It is often difficult for women farmers to travel long distances to ascertain market prices, but a Short Messaging Service (SMS) might deliver that information without breaking any traditional stereotypes and gender norms. Very little data, disaggregated by the gender of beneficiaries, is available on the impact of ICT applications in agricultural risk management.

4. Trust in Information and Transfer Products: Trust in information and trust in transfer products are also critical issues in risk management. The information delivery mechanism seems to influence farmers’ confidence and trust in the information as well as how they use it.

Farmers in Nigeria and other developing countries are more likely to act upon information received directly from an expert than on information provided by an automated database. Farmers are also more likely to trust and act on information they receive from a person standing in front of them than from somebody on the phone or an automated phone message.

Basic Requirements for Application of ICTs in Risk Management

Successful application of ICTs in risk management in agriculture requires that certain basic requirements must be fulfilled. These requirements/facilities are external support from government, nongovernmental organizations, and private establishments. The requirements/facilities are listed below.

1. Infrastructure: Basic facilities that are required for the take-off of application of ICTs in risk management are uninterrupted electricity delivery and mobile network coverage. The importance of electricity in ICT usage cannot be overemphasized.

Even if mobile network coverage is achieved in all the nooks and crannies of Nigeria, the epileptic nature of electricity supply will hinder the delivery of information as at when due.

2. Institutional and Regulatory Reform: There should be the reformation of traditional institutions and cultural backgrounds that can serve as barriers to the adoption of ICTs for risk management.

3. Business Climate Reforms: The business climate must be reformed in such a way that participation and innovation from the private sector in the utilization of ICTs in agricultural risk management will be encouraged.

4. Technological, Agricultural, and Financial Literacy for Farmers: Low financial, technological, and agricultural literacy represents a significant barrier to the effective use of ICTs in risk management by farmers in Nigeria and other developing countries. The availability of trained agricultural extension agents would salvage the situation by educating the farmers.

ICT Applications for Mitigating Agricultural Risk

While agriculture will continue to be risky, many risks can be mitigated by timely action and through the application of best practices. Typical risk mitigation actions might be spraying crops with the appropriate pesticides in response to an early warning of a nearby pest outbreak or optimally altering cropping patterns in response to news from commodity futures markets.

Information is the most critical requirement for effective risk mitigation, and farmers need a variety of information to make choices to manage risk. Two types of information are most important for risk mitigation:

Early warnings about the likely occurrence of inclement weather, pest and disease outbreaks, and market price volatility.
Advisory information to help farmers decide upon a course of action to manage production risks optimally or to respond to early warnings.

The connection between agricultural advisory services and risk mitigation is an important one because information alone is often not sufficient to manage risk. For example, if a farmer knew that a banana disease was spreading nearby, they would require help in choosing the right action to prevent infection of the plants they owned.

In many cases, the early warning or decision support information already exists. State meteorological services generally collect weather information and create forecasts.

Similarly, agricultural institutes, research universities, or extension services are typically well aware of best practices in crop selection, production techniques, input use, pest management, global commodity trends, and other topics critical to smallholder farmers.

One difficulty has been to collect and process this information so that it is relevant to individual farmers. Another has been to transmit the information to rural populations in poorly connected areas in cost-effective ways.

ICT applications have made it easier and cheaper to achieve these objectives. There is some doubt about whether an early warning alone can help farmers mitigate risk. Many of these causal links have not been tested empirically.

Latent demand for advice in addition to warnings appears to exist, but it is not clear whether farmers are willing to pay for such advice delivered using ICTs or whether the private sector can deliver such information sustainably.

ICT Applications to Transfer Agricultural Risk

Applications of ICTs to transfer agricultural risk through instruments such as insurance and futures contracts are still quite limited.

The widespread use of these instruments seems to be hampered by low levels of institutional development, high costs, inability to customize products to meet smallholders’ requirements, and poor financial literacy rather than by the information constraints that ICTs can address.

In a few instances, ICT applications are facilitating the design and delivery of index insurance. Although ICTs have made it easier for smallholders to access and participate in spot commodity exchanges, their use of ICT to participate in futures contracts to hedge price risks remains a distant dream.

ICT Applications for Coping with Agricultural Risk

While there have been few applications of ICTs to cope with agricultural shocks, those that exist are proving important and potentially transformative. Mobile phones enable ground personnel or affected persons to report more easily to whoever is coordinating a response to the shock.

This communication leads to better-targeted relief efforts. In the event of a shock, ICTs facilitate transfers and remittances to farmers from state and relief agencies as well as from farmers’ extended social networks.

Disaster management is using more sophisticated applications to collect and synthesize information from the field. In the future, these disaster management applications might be applied to respond to agricultural shocks.

Recent ICT Applications for Risk Mitigation

Farmers in many countries receive news of impending bad weather and catastrophic events, pest and disease outbreaks, and price volatility in commodity markets.

The use of ICTs has reduced the cost and increased the profitability of providing this information, which has attracted private sector participation in a space traditionally dominated by state extension services or agricultural institutes.

The private sector originally developed services to provide market price information, but most of these services have evolved to deliver news about impending catastrophic and inclement weather.

ICT and Risk Management: Emerging Issues

The use of ICTs for risk mitigation is an emerging simpler way of communicating information to farmers. A number of insights emerge from recent experiences in using ICTs to mitigate agricultural risk.

One important insight is that the missing link in providing risk-mitigating information to farmers was not the information itself but the challenge of aggregating, personalizing, and disseminating it in a timely and cost-effective way. The content that farmers need is already produced by universities and agricultural research institutes.

Any use of ICT applications to mitigate agricultural risk must ensure that the fundamental requirements described above are present or can be developed easily. For example, farmers’ familiarity with ICTs should be assessed before initiating an intervention.

Similarly, there should be a baseline understanding of whether farmers have the capacity to make good use of the information. Do farmers have access to rural finance, markets, transport, technology, inputs, and so on? If not, consider awareness and education programs regarding risk-mitigating strategies or appropriate responses to early warnings.

One difficulty in providing early warning or advisory services to farmers was not that the information was lacking, but that it could not be delivered effectively.

ICTs make it easier to collect information from the universities and institutes that produce it and then to personalize it and provide it directly to farmers.

The medium matters, however. A radio announcement is different from a phone call, which is again different from a text message. Collaboration between the private and public sector is increasing.

The public sector generates early warnings and provides expert advice, while the private sector has found that it can leverage ICTs (particularly mobile phones and back-end data collection and processing systems) to deliver this content to farmers quickly.

Profitability remains a challenge. In many instances, the upfront investment and capital costs (such as the cost of investing in weather and ICT infrastructure) as well as the operational costs are high. A longer-term horizon and significant economies of scale are required to break even.

The ability to deliver highly personalized information is another key to earning revenue. Farmers naturally want information relevant to themselves their crops, their plant and livestock disease, their markets in the language they speak.

It is difficult to elicit direct payment for services from farmers, but if farmers see a value proposition, they are often willing to pay for a service.

As a result, private participation in delivering information should be encouraged where possible, but the commercial sustainability of such initiatives should be analyzed rigorously. Information service providers should be encouraged to partner with the public sector to source content.

In this article, readers have learned about the use of ICTs in risk management. ICTs can be used for risk mitigation, risk transfer, and risk coping.

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